ABSTRACT
The specification and estimation of any econometric relationship poses significant challenges. This is especially true when it comes to the choice of functional form, as the latter is not always suggested or prescribed by the underlying economic theory. Any misspecification of the functional form of an econometric model can have serious consequences for statistical inference-e.g., the parameter estimates may be inconsistent. In response to the rigidities associated with explicit and rigid parametric functional relationships, and to avoid the consequences of their mis-specification, a more flexible nonparametric approach to their formulation and estimation is often very attractive (e.g., Pagan and Ullah, 1999).
